Alphabet's stock took a significant hit on May 7, 2025, dropping by 7% following comments made by Apple's senior vice president of services, Eddy Cue, during a testimony related to an antitrust lawsuit against Google. Cue's remarks suggested that traditional search volume on Apple's Safari browser had declined for the first time in 22 years, a development that has sent shockwaves through the market.
During the testimony, Cue attributed the decline in search volume to a shift in user behavior, with more people turning to AI tools like ChatGPT, Perplexity, and Gemini for their information needs. "For the first time ever in over 20—I think we've been at this for 22 years—last month, our search volume actually went down," Cue stated, emphasizing the impact of AI on traditional search engines.
This decline in search volume is particularly concerning for Alphabet, as Google Search serves as the company's core revenue engine. Fewer users on Google translate to fewer ad impressions, which could significantly affect the company's bottom line. As Cue noted, "If you ask what's happening, it's because people are using ChatGPT. They're using Perplexity. I use it at times." This shift in user preference raises questions about Google's long-term dominance in the search market.
Despite the market's reaction, it's important to note that Google still commands a substantial share of the search market. According to Statcounter's April 2025 data, Google held 89.66% market share, while its closest competitor, Bing, trailed far behind at 3.88%. However, this marks a decline from 90.91% a year ago. While critics point to this dip as a sign of trouble, others argue that it reflects a maturing market with new tools beginning to nibble at Google's edges.
In 2024, Google Search volume grew by 21.6% year-on-year, and the company's revenue increased by 13% in that same year, followed by a further 10% growth in the first quarter of 2025. Thus, while market share may be inching down, the overall size of the search market is expanding, and Google remains a dominant player.
AI tools are undeniably changing the landscape of online search. As of April 2025, ChatGPT held an impressive 84.21% market share among AI chatbots. A recent survey indicated that 27% of U.S. respondents prefer AI tools over traditional search engines. Moreover, Gartner predicts that AI could handle between 30% to 50% of all search queries by the late 2020s. However, there remains a significant gap; ChatGPT processes around 37.5 million "search-like" prompts per day, while Google processes approximately 14 billion.
In response to these shifts, Google is actively adapting its search offerings. Users searching on Google may have noticed an "AI Overview" feature at the top of their search results, where Google summarizes information to directly answer questions. Alphabet's CEO, Sundar Pichai, along with Search VP Robby Stein, claims that these AI Overviews are driving increased user engagement. However, this innovation raises a critical question: if users can get answers directly from Google's AI, will they still click on links or ads?
One potential solution for Google could involve monetizing these AI Overviews by placing sponsored links within them. Pichai believes that AI can ultimately enable more precise and effective ad placements, allowing Google to maintain its search dominance while evolving its business model.
Despite the bearish sentiment following Cue's testimony, some analysts argue that it's premature to write off Alphabet. The company's stock trades at 17 times earnings, significantly lower than its five-year average of 26 times, suggesting that it may be undervalued despite the challenges posed by AI.
In the broader context, the competition for search is becoming increasingly fierce. Younger users, particularly from Generation Z, are turning to social media platforms and AI tools for their information needs. A Bernstein Research report from September 2024 noted that 45% of Gen Z respondents are more likely to use social searching on platforms like TikTok and Instagram instead of Google. The number of Zoomers using these platforms as primary search engines has surged from 40% in 2016 to 52% in 2023.
Douglas Anmuth, head of U.S. internet equity research at JPMorgan, suggests that while Cue's comments highlight the growing competition from AI, they also indicate that Google is not in immediate danger. He noted that Google has gained market share on Apple's web browser, with Chrome's share increasing from 47% to 53% from 2020 to 2025. In contrast, Safari's market share has decreased from 37% to 31% during the same period.
As Apple considers revamping Safari to incorporate more AI features, it remains to be seen how this will affect its partnership with Google, which has been worth approximately $20 billion annually. The ongoing antitrust lawsuit may further complicate this relationship, potentially impacting both companies significantly.
In conclusion, while the rise of AI search tools presents challenges to Google’s traditional search model, the company's substantial market share and ongoing innovations suggest it still has a strong foothold in the industry. As the landscape continues to evolve, both Google and Apple will need to adapt their strategies to stay competitive in this rapidly changing environment.
